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  1. Raising capital to be biggest challenge: Ratna Vishwanathan

Raising capital to be biggest challenge: Ratna Vishwanathan

The challenge will be to raise deposits and capital. As MFIs, they could borrow from banks, but now as small finance banks, they cannot do that anymore

By: | Published: September 19, 2015 12:11 AM

As most small finance bank licences winners are from the microfinance industry, it will help the industry secure ‘most favourable’ bank funding, especially for small microfinance institutions, feels Ratna Vishwanathan, CEO of industry body Microfinance Institutions Network (MFIN). In an interview with Mithun Dasgupta, she says after transforming into small banks, these entities will have to face challenges also. Excerpts:

Will the microfinance industry get a boost with the Reserve Bank of India (RBI) granting small finance bank licences to eight microfinance institutions (MFIs) out of ten successful applicants?

There were 72 applications (for small banking licence), out of that only 10 were selected. Of the total number of 10 licences granted 8 are MFIs, which obviously needs a lot of credibility that the sector seems to have particularly to operate in this space, which is also recognised by the RBI. So yes, we hope that the general recognition of the microfinance sector in the stakeholders’ context will be far more robust compared to the past.

After transforming into small banks, which will be their target sectors?

Primarily, these entities (MFIs which got the licences) were engaged in the business of providing unsecured finance to the small, marginal and low income households and entrepreneurs of un-organised sector. So, what these upcoming banks will aim to do is to provide credit to the small and micro sectors, small and marginal farmers, low income households and small business in both rural and urban areas.

What kind of initial challenges these MFIs will have to face after commencing banking operations?

The challenge will be to raise deposits and capital. As MFIs they could borrow from banks, but now as the small finance banks they cannot borrow from other banks anymore. Now, they will have to raise their own capital. Also now they have to mobilise deposits.

What is the outlook for the microfinance sector in terms of growth this fiscal and in the next 5 years?

During the last financial year our gross loan portfolio grew by 61%. And we are hoping that it would be at the same level for this year as well.

What would be the impact on the industry as eight players are going out?

As the large ones are going out there will be a gap, initially the business may slow down because of the numbers of the entities coming down. There may be less capital in the market. And in terms of money flowing into the market, there will have an impact.

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